Buy now, pay later (BNPL) offerings continue to grow in popularity across the UK. However, a distinct lack of protections in the space is leaving many Brits in debt they can’t afford to pay back, personal finance comparison site finder.com has warned.
An increasing number of Brits are using BNPL services despite the government being unlikely to introduce planned regulation to the sector in the UK ahead of the general election this year. If legislation was passed in the space, it would grant the Financial Conduct Authority (FCA) more power to regulate BNPL firms and protect consumers from unrestricted, easily accessible lending.
Fifty per cent of UK adults have used BNPL at some point, an estimated 26.4 million Brits, according to new research by finder.com. Fourteen per cent (around 7.7 million) of these also started using BNPL for the first time in 2023, despite it still being largely unregulated.
After announcing plans to regulate the sector in 2021, the government released a draft of new rules in 2023 but has yet to publish a response to the consultation that followed, despite pressure from the FCA.
According to Liz Edwards, editor-in-chief at finder.com, it’s a ‘total lottery’ whether or not Brits can afford to repay what they borrow from BNPL lenders, which do not have to perform checks before approving loans.
Edwards explains: “Consumers need the same protections in this sector that they get with other types of credit – they need proper information upfront, such as what the deal is and what happens if they miss a payment, and they need to be able to complain to the Financial Ombudsman if things go wrong, which currently, they can’t.
“When I spoke to the Financial Ombudsman’s office about BNPL complaints, it couldn’t tell me how many it had received as it doesn’t keep records for unregulated products, since it can’t investigate them.”
Late fees and damaged credit scores among the ‘hidden’ dangers
Many BNPL providers have now introduced fees to customers for making late payments. Generally, these providers cap late fees at a certain price point but charge customers if they do not make repayments on time in line with their plan – with some charged multiple times per order.
The research from finder.com also found that 53 per cent of those who used BNPL in the 12 months to January 2024 had paid at least one late fee, with the average amount paid sitting at £23.50. With this in mind, finder has also revealed concerns that this will negatively impact the credit scores of many who rely on BNPL without fully understanding the associated risk involved.
BNPL usage is particularly common among the younger generations, as 69 per cent of millennials (aged 24 to 42) and 68 per cent of gen Z (aged 18 to 23) have used it. However, while BNPL is becoming more popular, almost 38 per cent of Brits have never used the payment method and have no intention to use it in the future.
Image and article originally from thefintechtimes.com. Read the original article here.